Common sense moves Country Wide
Common sense is not so common. — Voltaire
Showing eminent common sense, and uncannily echoing AHI’s pre-default recapitalization program, Countrywide Financial (which has been taking a beating lately, in the press and stock market), is making moves to pre-empt a wave of destabilizing defaults that would otherwise likely occur upon mortgage resets, by offering prepackaged modifications.
Eye of newt and tongue of dog
As reported in CNN Money:
The program is targeted to 80,000 borrowers who face the risk of default because their current variable rate mortgages would see payments jump to levels they could not afford, prompting a default of those loans.
Among the fascinating elements of this particular shakeout is its crumple zone. Securitization, to which much blame has been attached, has distributed the pain temporally (different shocks occurring at different times) and ecosystemically (different actors feeling the pinch). The result is that risk has migrated to those most able to bear it — mega-banks and large investors — which also means that they move quickly to anticipate trouble and tackle it — faster than government could.
“Countrywide believes that none of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,” said a statement from Countrywide President David Sambol.
This noble sentiment mirrors the principles in AHI’s legislative proposal, which was:
The target is borrowers still in good standing, who are making current payments, and facing a spike in their requirements based on a rate reset:
The bank says it has identified 52,000 borrowers, who collectively have borrowed about $10 billion, that it believes it can move into prime loans or those guaranteed by the Federal Housing Administration.
On behalf of our parents, thanks!
Shifting these borrowers into lower-cost permanent financing not only puts them at a stroke into performing status, it takes risk away from Countrywide. Good for everybody.
Another 20,000 borrowers who have more severe credit issues but are current with their loan payments could be eligible for modifications of their loans. That group has loans totaling about $4 billion.
This is a little more of a stretch. These folks are probably, if not delinquent, then teetering on the edge of it.
I think we can stabilize the situation and salvage our equity
Why these lucky 20,000?
Really? I got lucky?
Thinking like a lender, I suspect their loans have either punitive provisions or high interest rates that might intrigue a public-interest crusader into arguing that the borrowers are in trouble only because they were suckered into it — and I’ll bet that the loan documentation to be signed in accepting the modification will include the borrower waiving claims against Countrywide as an originator.
Finally, Countrywide said it will send letters offering pre-determined, pre- approved rate reduction for an additional 10,000 borrowers who are delinquent on payments on loans totaling $2.2 billion.
These folks too — why them?
It is in Countrywide’s interest not to have borrowers default on home loans. Besides the losses that the lender would take during the course of such a default, there is a glut of both new and existing homes already for sale on the market. That oversupply of homes is pushing down prices and pushing back the time it takes to sell the homes.
I speculate that these are properties where Countrywide has already figured out the current borrower can probably pay the full loan off, at a lower interest rate, whereas a foreclosure will lead to a loss — in other words, where it is in Countrywide’s interest to keep the borrower in place.
The company is expected to announce a deep loss when it reports results Friday [It did, losing $1.2 billion. — Ed.], along with a sharp drop in its business levels in the third quarter. It has announced it will have to take charges of between $125 million and $150 million to lay off staff and close offices.
Offering workouts in a package also shrinks the restructuring workload — a logical move if you’re busy laying off staff.
It’s only common sense, Mr. Paine
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